What Is the Labor Force Participation Rate?
The labor force participation rate is an estimate of an economy’s active workforce. The formula is the number of people ages 16 and older who are employed or actively seeking employment, divided by the total non-institutionalized, civilian working-age population.
In the 12 months ending March 2023, the U.S. labor force participation rate ranged between a low of 62.1% and a high of 62.6%, according to the U.S. Bureau of Labor Statistics (BLS), which publishes the figures monthly. As of March 2023, it is 62.6%.
From 2013 on, the monthly figures held steady in the vicinity of 63%, after a sharp decline in the wake of the Great Recession; however, in early 2020, the labor force participation rate fell dramatically, dropping from 63.4% to 61.4% in the first half of the year, as a result of the COVID-19 pandemic. Its low point was reached in April 2020, when the rate sank to 60.2%.
- The labor force participation rate indicates the percentage of all people of working age who are employed or are actively seeking work.
- In conjunction with the unemployment numbers, it can offer some perspective into the state of the economy.
- Starting in 2013, the U.S. labor force participation rate held steady at around 63% until the COVID-19 pandemic struck. It was 62.6% as of March 2023.
- The rate varies over time based on social, demographic, and economic trends.
- Global labor force participation has shown a steady decline since 1990.
Understanding the Labor Force Participation Rate
The labor force participation rate is an important metric to use when analyzing employment and unemployment data because it measures the number of people who are actively job-hunting as well as those who are currently employed. It omits institutionalized people (in prisons, nursing homes, or mental health facilities) and members of the military.
It includes all other people aged 16 or older and compares the proportion of those who are working or seeking work outside the home to those who are neither working nor seeking work outside the home.
Because it accounts for people who have given up looking for work, this may make the labor force participation rate a somewhat more reliable figure than the unemployment rate. The unemployment numbers do not take into account those who have given up looking for work.
Some economists argue that the labor force participation rate and unemployment data should be considered together in an effort to better understand an economy’s real employment status.
Labor Force Participation Rate Formula
The formula for labor force participation is:
This applies to all members of the population at age 16 or older.CivilianNon-InstitutionalPopulation(NumberEmployed+NumberSeekingWork)×100
Factors That Affect Participation Rate
Labor force participation does not exist in a vacuum. Instead, it is impacted by a variety of social, economic, and demographic factors. As these factors change, then labor force participation might go up or down. These changes can happen quickly or slowly. They might have a short-term impact on labor force participation, or they might create long-term change.
Short- and long-term economic trends can influence the labor force participation rate. In the long run, industrialization and the accumulation of wealth can have an impact.
Industrialization tends to increase participation by creating employment opportunities. High levels of accumulated wealth can reduce participation because wealthier people simply have less need to work for a living.
In the short term, business cycles and unemployment rates influence the participation rate. During an economic recession, the labor force participation rate tends to fall because many laid-off workers become discouraged and give up looking for jobs. Economic policies such as heavy labor market regulation and generous social benefit programs may also tend to decrease labor force participation.
Social expectations and changes to those expectations can impact who is available to participate in the workforce. As different groups are expected to work or not, the labor force participation rate will go up or down.
For example, if married men are considered responsible for supporting their families, while married women stay home, then women will stop working once married or after having children, which lowers the labor force participation rate. If the expectation is that both parents should be able to work, however, then some parents of either gender will leave the workforce, while others will stay.
Expectations for education can also impact the labor force participation rate. If the majority of young people learn a trade or a family business as they are growing up, then are expected to work immediately after finishing a high school education, then adults will start entering the workforce between ages 17 and 19. In countries or demographic groups where attending college is more common, though, more young adults will continue their education after high school. Labor force participation will go down because they won't join the workforce until their early or mid-twenties.
Changes in the working-age population from generation to generation influence labor force participation as well. As large age cohorts enter retirement age, the labor force participation rate can fall.
For example, the retirement of a steady stream of baby boomers has reduced labor force participation. Baby boomers are one of the largest demographic blocks in the population. Since generations after the baby boomers are smaller, they will not be replaced by as many active, younger workers when they retire.
Trends in Participation Rate
The labor force participation rate has changed based on economic, social, and demographic trends over the long term. It rose steadily through the second half of the 20th century, peaking at 67.3% in April 2000. As the Great Recession hit in 2008, the participation rate entered several years of steep decline, stabilizing at around 63% by 2013.
The trend in the women’s labor force participation rate largely parallels the long-term trends for the total population. The women’s labor force participation rate nearly doubled from 32% to 60% in the 50 years from 1948 to 1998. This rate has since dropped to 54.6% in April 2020, from 57.9% in Feb. 2020. As of March 2023, it sits at 57.1%.
The U.S. labor force participation rate of 62.6% in March 2023 included 57.1% participation for women and 68.4% participation from men.
Why the Participation Rate Has Declined
According to the Federal Reserve, the share of prime-working-age people (25 to 54 years old) in the labor force peaked at 72% in 1995 and has declined since then. This roughly corresponds to some of the declining trends in labor force participation in the 21st century. There are a number of reasons that the labor force participation rate has declined.
- The Great Recession: During the Great Recession from 2007 to 2009, unemployment rose from 5% to 10%. In the decade that followed, the labor market recovered. But many workers who had left the workforce never returned to full-time work, even after jobs were available. Though overall unemployment returned to pre-recession levels, rates of long-term unemployment increased as workers who had lost jobs stayed out of the labor force for longer periods of time.
- COVID-19: There was another sharp drop in labor participation in early 2020, as the COVID-19 pandemic shut down the U.S. economy. Many vulnerable workers were unable or unwilling to remain in face-to-face jobs, while others left their jobs to take care of family members at home. Due to caregiving expectations, women left the workforce at higher rates than men did.
- Retirement: Baby boomers are the largest segment of the population. As they reach retirement age and leave the labor force, the participation rate goes down, since there aren't enough younger workers to replace them. From 2007 to 2014, up to half the decline in labor force participation was a result of the workforce aging, according to the Council of Economic Advisors.
- College: An increase in college attendance at the younger end of the age spectrum is another factor that reduces labor force participation. College enrollment by 18- to 24-year-olds increased from around 35% to 41% from 2000 to 2018; however, enrollment rates dropped during the pandemic, with undergraduate enrollment declining 7.8% from fall 2020 to fall 2021. It has been growing in the spring of 2023.
The national unemployment rate in the United States in March 2023 was 3.5%.
Global Labor Force Participation
Global labor force participation has shown a steady decline since 1990. According to the World Bank, the global labor force participation rate stood at 59% at the end of 2021, down from 62% in 2010.
The following table highlights the countries with the highest and lowest labor force participation rates as of 2021 (most recent data):
|Countries With the Highest and Lowest Labor Force Participation Rates (2021)|
|Country (Highest)||Rate||Country (Lowest)||Rate|
|United Arab Emirates||81%||Iraq||40%|
The U.S. territory of Puerto Rico also made the list, ranking among those with the lowest labor force participation rates at 40%.
What Does the Labor Force Participation Rate Measure?
The labor force participation rate measures a country’s active workforce of people 16 and older. It takes into account people who have stopped looking for work but still want to work, unlike the unemployment rate.
What Affects the Labor Force Participation Rate?
Three major factors influence the rate: economic, demographic, and social. For instance, the recent retirement of baby boomers in great numbers has pushed the rate down, while the introduction of large numbers of women into the workforce in the second half of the 20th century increased the rate. In April 2020, after the COVID-19 pandemic struck the U.S., the rate went down by more than 3% compared to the beginning of that year.
How Does the U.S. Labor Force Participation Rate Compare With Those of Other Countries?
According to the World Bank's most recent data from 2021, the U.S. falls in the middle of the pack at 61%, a few points ahead of the world rate of 59%. The highest rate was held by Qatar, at 88%, and the lowest by Djibouti at 31%.
How Is the Labor Force Participation Rate Measured?
The labor force participation rate is measured by the Bureau of Labor Statistics, based on a monthly household survey by the U.S. Census Bureau. This survey asks respondents about their age and whether they are employed or looking for work. On that basis, the government can estimate the labor force participation rate.
Why Is the Labor Force Participation Rate Declining?
The participation rate has steadily declined since the late 1990s, largely due to the retirement of baby boomers and other demographic changes. In 2020, there was a sharp drop in labor participation due to the COVID-19 pandemic, which shuttered many businesses and forced many vulnerable people to leave the workforce.
The Bottom Line
The labor force participation rate measures the percentage of adults who are either employed or actively looking for a job. It does not include those in the military, prisons, or otherwise outside of the ordinary labor market. It also accounts for the people who are not seeking work, making it a more reliable statistic than the regular unemployment rate.
The labor force participation rate is an estimate of an economy's active workforce. The formula is the number of people ages 16 and older who are employed or actively seeking employment, divided by the total non-institutionalized, civilian working-age population.What are the trends labor force participation? ›
Basic Info. US Labor Force Participation Rate is at 62.60%, compared to 62.60% last month and 62.20% last year. This is lower than the long term average of 62.84%.What is the formula for the labor force participation rate? ›
The labour force participation rates is calculated as the labour force divided by the total working-age population.What is the labor force participation rate what is the five year trend? ›
Labor Force Participation Rate in the United States averaged 62.84 percent from 1948 until 2023, reaching an all time high of 67.30 percent in January of 2000 and a record low of 58.10 percent in December of 1954.What factors determine labor force participation? ›
- Population: As expected, population increases result in labor force increases. ...
- Income: As state incomes grow, it attracts labor force entrants hoping to take advantage. ...
- Educational Attainment: A more educated society has a larger labor force.